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Solar Energy for the Poor: How Obama Plans to Change Energy

Community solar gardens could be big business if the Obama administration gets its way.

A dark reality in the solar industry is that in the U.S., cheap, clean energy from the sun has been reserved mostly for wealthy homeowners and is out of reach for millions of lower-income Americans. According to a recent paper from The George Washington University Solar Institute, households in the top 60% of income in the U.S. account for 95% of all residential solar installations.

That's partly due to the fact that lower-income Americans often rent instead of own a home that could install solar, and it represents a disparity in the industry. With the cost of solar energy from your roof now lower than buying energy from the grid in many parts of the country, why leave 40% of households almost entirely out of the market?

Source: SolarCity.

Obama's plan to fix solar disparitiesThere's at least some movement in trying to change this solar disparity. This week, the White House proposed a number of measures to ramp up what's called community solar projects. Solar plants that are built in open spaces but where customers can buy energy at lower rates than from the grid. Xcel Energy (NYSE: XEL) recently launched its community solar garden program in Minnesota and received 914 MW of bids (of which they'll build much less).

In Xcel Energy's plan, customers in Minnesota will be able to buy energy for 13 cents per kWh from the solar gardens and Xcel Energy will provide a credit of 14.7 cents, leading to 1.7 cents per kWh in savings for those who participate. The program will be open to renters or others who can't install solar themselves.

The Obama administration's plan is to bring a similar program to more states, making it possible for lower-income people to participate in the solar industry. On top of that, it raised the goal of installing solar on subsidized housing developments to 300 MW from a 2013 goal of 100 MW by 2020. The previous goal was reached after just two years, so the increased target may become obsolete soon as well.

Solar is a booming business nationwide, but this could bring an entirely new market into the fold. That's good for the industry's exposure to customers and for market growth overall.

How you can make money off this solar boom Bringing solar energy to more people is great news, but how will investors take advantage?

The easiest way is by owning developers that will build community solar farms and sell their electricity to utilities. SolarCity was one of the largest participants in the Minnesota bids and plans to build 100 MW of solar projects in the state.

SunPower and Vivint Solar are the two other developers to watch in this space, although they haven't entered it yet. SunPower is one of the largest developers in both residential and commercial solar and Vivint Solar is transitioning into commercial solar projects, which would be similar to community solar gardens.

Unlike residential or commercial projects, community solar gardens should come with lower default risk because the utility is essentially the intermediary in the transactions. As long as the structure is built correctly, there should be little default risk, meaning an attractive return for solar companies.

If the Obama administration has its way, this will be a huge market for the solar industry, which is great news for lower-income energy customers and solar investors.